The Lexus and The Olive Tree

I am kind of going backward in my reading of Friedman: In 2005 I read his then just released book "The World is Flat" and now I read his 1999 book as described below. I was not keeping notes in 2005 nor was I posting. I find now that I will probably have to re-read "The World Is Flat" and keep notes this time--such is life in the retired lane. By the way: my trip to D.C. and then Fla is delayed at least one day due to weather.


Thomas L. Friedman, “The Lexus and The Olive Tree: Understanding Globalization), Dougas & MacIntyre Ltd, 1999, 378 Pages

The Lexus and the Olive Tree is so titled because Friedman maintains that the world in 1999 was undergoing two struggles: the drive for prosperity and development, symbolized by the mostly robotic manufacture of the Lexus automobile, and the desire to retain identity and traditions, symbolized by the fights over who owns the olive trees in Israel and Gaza. I did not find much of this book dated although it was written a decade ago; the concepts are every bit applicable today as then. This book is an effort to explain how this new era of globalization became the dominant international system at the end of the twentieth century—replacing the Cold War system—and to examine how it now shapes virtually everyone’s domestic politics and international relations.

My Notes:
Pg. xv: The Cold War was an international system. It lasted roughly from 1945 to 1989, when, with the fall of the Berlin Wall, it was replaced by another system: the new era of globalization we are now in. Call it ‘Globalization Round II.’ It turns out that the roughly seventy-five-year period from the start of WWI to the end of the Cold War was just a long time-out between one era of globalization and another.

As The Economist once noted, the previous era of globalization was built around falling transportation costs. Thanks to the invention of the railroad, the steamship and the automobile, people could get to a lot more places faster and cheaper and they could trade with a lot more places faster and cheaper. Today’s era of globalization is built around falling telecommunications costs—thanks to microchips, satellites, fiber optics and the Internet. These technologies allow companies to locate different parts of their production, research and marketing in different countries, but still tie them together through computers and teleconferencing as though they were in one place. Additionally, people can now offer and trade services globally—from medical advice to software writing to data processing—that could never really be traded before.

Pg. 10: Those countries that are most willing to let capitalism quickly destroy inefficient companies, so that money can be freed up and directed to more innovative ones, will thrive in the era of globalization. Those which rely on their governments to protect them from such creative destruction will fall behind in this era.

Pg. 40: What blew away all the walls were three fundamental changes—changes in how we communicate, how we invest and how we learn about the world. These changes were born and incubated during the Cold War and achieved a critical mass by the late 1980s, when they finally came together into a whirlwind strong enough to blow down all the walls of the Cold War system and enable the world to come together as a single, integrated, open plain.

Pg. 86: The Golden Straitjacket first began to be stitched together and popularized by Margaret Thatcher in England, beginning in 1979. It was soon reinforced by Ronald Regan in the U.S. in the 1980s, giving the straitjacket, and its rules some real critical mass. It became a global fashion with the end of the Cold War. Thatcher and Reagan combined to strip huge chunks of economic decision making power from the state, from the advocates of the Great Society and from traditional Keynesian economics, and hand them over to the free market.

To fit into the Golden Straitjacket a country had to either adopt, or be seen as moving toward, the following golden rules: making the private sector the primary engine of its economic growth, maintaining a low rate of inflation and price stability, shrinking the size of its state bureaucracy, maintaining as close to a balanced budget as possible, if not a surplus, eliminating and lowering tariffs on imported goods, removing restrictions on foreign investment, getting rid of quotas and domestic monopolies, increasing exports, privatizing state-owned industries and utilities, deregulating capital markets, making its currency convertible, opening its industries, stock, and bond markets to direct foreign ownership and competition as possible, eliminating government corruption, subsidies and kickbacks as much as possible, opening its banking and telecommunications systems to private ownership and competition, and allowing its citizens to choose from an array of competing pension options and foreign-run pension and mutual funds. When you stitch all of these pieces together you have the Golden Straitjacket.

Pg. 90: The democratizations of finance, technology and information didn’t just blow away all the walls protecting alternative systems—from Mao’s Little Red Book to the Communist Manifesto to the welfare states of Western Europe to the crony capitalism of Southeast Asia. These three democratizations also gave birth to a new power source in the world: ‘The Electronic Herd.’

The Electronic Herd is made up of all the faceless stock, bond and currency traders sitting behind computer screens all over the globe, moving their money around with the click of a mouse from mutual funds to pension funds to emerging market funds, or trading from their basements on the Internet. And it consists of the big multinational corporations who now spread their factories around the world, constantly shifting them to the most efficient, low-cost producers. Moody’s Investors Service and Standard & Poor’s are the bloodhounds for the Electronic Herd.

Pg. 112: Nike first established its Asian production facilities in Japan, but when that got too expensive it hopped over to Korea and then went to Thailand, China, the Philippines, Indonesia and Vietnam.

Pg. 117: The rise of the Internet, which came in the last stages of the democratizations of technology, finance and information, certainly contributed to this new era of globalization. The Internet will ensure that how we communicate, how we invest and how we look at the world will be increasingly global.

Pg. 138: World Bank president James Wolfensohn proposed that we revise our methodology for measuring countries from the current checklist, which is almost entirely confined to financial statistics—GDP, GNP, per capita income—to a new form of accounting that would measure a country’s health as an emerging society and not just as an emerging market. Countries must be graded on the quality of their governing software, judicial system, procedures for settling disputes, social safety net, rule of law, and economic operating systems.

Pg. 305: America also must use this moment, when it has a few extra assets (written in 1999, ha, ha), to deal with its still very real liabilities: crime-ridden inner cities, an insane lack of gun control, widening income gaps, underfunded public schools, a culture of litigation that can be debilitating to everyone from small businessmen to large corporations, an underfunded social security system, a consumer credit card culture that encourages too many people to spend too far beyond their means and rack up a mountain of consumer debt that in the event of a recession could pose a real danger to the whole financial structure, an a political system increasingly perverted and corrupted by lax campaign finance laws.

Pg. 334: Here’s a little secret: Japan’s economy was always a lot more communist than capitalist. In fact, it was the only country in which communism actually worked. Throughout the Cold War, Japan was dominated by a single party, the Liberal Democratic Party. While Japan was ruled by the LDP, the state was run by a nomenklatura, an elite bureaucracy, just as Russia and China were. These elite bureaucrats often determined where resources should be allocated. The media in Japan were incredibly docile and while not formally controlled by the government, were essentially guided by it. Japan had a deeply conforming population, with huge costs inflicted on those who did not conform. In Japan the nonconformists were labeled the ‘Madogiwazoku,’ which is translated as ‘the looking-out-the-window crowd,” because they were often given desks that faced out the window and were basically shunned. This conforming population was ready to accept long working hours in return for a rising standard of living, lifetime employment contracts and a certain stability of life. Japan had forced savings program in which the population, and corporations, were compelled to save and invest and not consume. If Soviet communism had worked half as well as Japan’s version, Moscow never would have lost the Cold War.

Pg. 335: Eventually, if Japan is to avoid permanent stagnation, the communist segment of the Japanese economy is going to have to be privatized just like China’s and Russia’s. This applies particularly to inefficient firms and banks.

Pg. 338: In the globalization system the most threatening problems for the U.S. are black-market sales of nuclear warheads, strategic nuclear missile reduction, environmental degradation, containing rouges such as Iraq or North Korea, and financial viruses. None of these issues can be addressed effectively by America without the cooperation of a reasonably stable and democratizing Russia. Therefore, enlisting Russia’s cooperation, and doing whatever we can to advance political reform there, should be our first priority—not expanding NATO, which can only undermine cooperation with Moscow.

Pg. 341: A warhead exploding 300 miles above Omaha would instantly zap the U.S. from coast to coast with a tidal wave of charged electrons. Every electronic system, every radio transmission, every computer bank in the country would experience something like a lightning strike magnified a millionfold. An intense surge of up to 50,000 volts per meter would flow through the circuitry that wires the entire nation.